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Last minute tax planning tips

If you’re like most people, you don’t likely look forward to income tax time – even if you will be getting a refund. But filing taxes is a necessary component of life. So, if you want to determine whether you could pay less – or generate an ever larger refund – implementing some last minute tax planning tips could help.

How to Legally Reduce Your Tax Liability

Many people needlessly pay taxes that they could have avoided – or forgo getting a higher income tax refund – by NOT taking advantage of various strategies. Some of the top methods you could consider include the following:

  1. Determining whether to itemize your tax deductions or use the IRS standard deduction. Whether you itemize or use the standard deduction could mean the difference between paying a four- or five-figure income tax bill or keeping that money in your own pocket.
  2. Considering the use of a Qualified Charitable Distribution (QCD). The QCD Rule allows traditional IRA owners to exclude their required minimum distributions (RMDs) from adjusted gross income – as long as the money is given to a qualified charity.
  3. Maximizing your traditional retirement plan and traditional IRA contributions. If you have a traditional IRA or retirement account, maximizing your annual contribution(s) could result in lower taxable income in the year(s) you make deposits.
  4. Funding small business retirement plan(s). Small business owners may be able to generate a nice amount of tax savings by offering a retirement plan for employees.
  5. Turning a five-year withdrawal requirement into only four. While you may not deduct contributions to Roth IRAs on your tax return, once the account has been open for five calendar years, the withdrawals will be tax free. Therefore, if you open a Roth account at the end of a calendar year, that year still “counts” as one entire year of the five that are required for generating tax free withdrawals.
  6. Not letting the funds in a Flexible Spending Account (FSA) go to waste. If you participate in a Flexible Spending Account, make sure that you know if the funds in the account work on a use-it-or-lose-it basis… and if so, access the money asap before it is lost.
  7. Avoiding any Required Minimum Distribution (RMD) penalties. Anyone who is required to take withdrawals from a traditional IRA and/or retirement account should do so every year. Otherwise, you could face some stiff IRS penalties on the money that has not been accessed.
  8. Fulfilling any necessary 72(t) withdrawal requirements. If you are under age 59 ½ and you’re also taking penalty-free withdrawals from retirement plan(s) based on the rule of 72(t), make sure that you abide by all of the requirements. If you don’t, you may also face IRS-related penalties here, too.
  9. Exploring possible opportunities for Net Unrealized Appreciation (NUA). Net unrealized appreciation, or NUA, is the difference in value between the average cost basis of shares of your employer’s stock that you own and the shares’ current market value. In this case, if you elect to have the appreciation of these shares taxed at long-term capital gains rates instead of ordinary income, you may be able to keep a significant amount of the funds for yourself, rather than giving them to Uncle Sam!

Your Year-End Tax Reduction or Elimination Checklist

If you’ll be giving up more of your money than you should be in taxes, following the year-end tax planning checklist here could help. You may also be able to print the checklist and use it for your reference so that you don’t leave any of these strategies out.

Year-End Tax-Planning Checklist

StrategyEligible for the Current Tax Year
(Yes or No)
Itemize or use the IRS standard deductionYes / No
Qualified Charitable Distribution (QCD)Yes / No
Maximize traditional retirement plan and/or IRA annual maximum contributionsYes / No
Fund a small business retirement plan (if applicable)Yes / No
Shorten the Roth IRA 5-year penalty-free withdrawal ruleYes / No
Access any flexible spending account (FSA) funds that won’t be carried over to avoid and IRS penaltyYes / No
Take any necessary Required Minimum Distributions (RMDs) to avoid an IRS penaltyYes / No
Take any 72(t) withdrawals that are due to avoid an IRS penaltyYes / No
Explore Net Unrealized Appreciation (NUA) opportunities to lower the tax on the gain(s)Yes / No

While the above strategies could help you to reduce your tax liability, it is important to note that because everyone’s situation and objectives can differ, it is absolutely essential that you first discuss your specific needs with a qualified tax professional.

The same holds true with the coordination and taxation of various retirement income sources. So, if you’d like to ensure that your retirement income plan is properly set up, based on your particular needs and goals, contact the specialists at Annuity Gator.

Our mission at Annuity Gator is to educate consumers (and financial advisors) on how annuities can work from a retirement savings and income standpoint, as well as how they could provide various tax advantages.

Want to know more?

If so, feel free to contact Annuity Gator directly by calling (888) 440-2468 or sending us an email through our secure online contact form. We look forward to helping you plan ahead for an enjoyable retirement.



2022 Tax Planning Checklist. BNY Mellon Wealth Management.

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